The Centre, on Thursday, finalised its borrowing programme for the first half of FY23, pegging the target at ₹8.45-lakh crore for this period.

The borrowing plan, which was finalised in consultation with the Reserve Bank of India (RBI), is in line with expectations and quiet market-friendly. 

With the borrowing plan for first half of FY23 coming at about 60 per cent of overall borrowing target of ₹14.95-lakh crore for next fiscal, economists pointed out that this front loading was in line with last fiscal when the same level of borrowing (60 per cent) was planned for the first half.

It maybe recalled that government had, in this year’s Budget, announced gross market borrowing of ₹14.95-lakh crore.

Taking into account the switch operations conducted on January 28, the gross market borrowing through dated securities for the F23 is expected at ₹14.31-lakh crore.

“This borrowing plan, including the front loading of 60 per cent for first half is on expected lines, and interest rate movement will depend on how inflation pans out from here”, Devendra Pant, Chief Economist, India Ratings told BusinessLine.

The first half borrowing will be spread under 2, 5, 7, 10, 14, 30 and 40 year securities and Floating Rate Bonds (FRBs) of various tenors.

Madan Sabnavis, Chief Economist, Bank of Baroda, said that front loading will assuage the market, and this comes when there is surplus liquidity in the system. “This is a market-friendly announcement and will not distort the market, given the ample liquidity. It is in line with expectations of front loading. Given the geopolitical uncertainty caused by the Ukraine- Russia war, the demand for credit might be low in the first half and this seems to have been factored in the borrowing programme,” said Sabnavis.

Aditi Nayar, Chief Economist, ICRA, said that the issuance calendar for H1 FY23 is slightly more front loaded than what ICRA had anticipated. “We had expected the GoI’s market borrowing calendar to target raising of ₹7.9 trillion gross G-sec in H1 FY23, 55 per cent of the adjusted budgeted total for FY23. Nevertheless, the announced amount is slightly less front-loaded than H1 FY22, in which 62 per cent of the total FY22 borrowing was raised, even though the amount is higher in absolute terms than H1 FY22,” she said.

G-sec yields

Once the borrowing calendar for FY23 kicks off, ICRA expect the G-sec yields to start hardening, in line with the global trends, even though the repo rate may not be hiked till August 2022. “We expect the 10-year G-sec yield to cross 7.0 per cent over the next few weeks, and rise to as much as 7.4 per cent over the course of H1 FY23,” said Nayar.

“Overall, we expect a status quo policy in April 2022. However, with the CPI inflation printing above the MPC’s upper threshold of 6.0 per cent in January and February 2022, we expect the tone to be less dovish, preparing the ground for an imminent stance change. We expect the monetary policy stance to be changed to neutral in June 2022, accompanied by a hike in the reverse repo rate, narrowing the corridor. Subsequently, we expect a shallow rate hike cycle, with two repo hikes of 25 bps each in August-October 2022.”

The government may continue to exercise greenshoe option to retain an additional subscription up to ₹2,000 crore against each of the securities indicated in the auction notification.

Weekly borrowing under Treasury Bills in First Quarter (Q1) of FY23 is expected to be ₹33,000-34,000 crore, with net borrowing of ₹ 2.40 lakh crore during the quarter., the release added.

There will be issuance of ₹13,000 crore under 91 dated Treasury bills (DTB), ₹12,000-13,000 crore under 182 DTBs and ₹8,000 crore under 364 DTBs in each auction to be held during the quarter.

To take care of temporary mismatches in government account, the Reserve Bank of India has fixed the Ways and Mean Advances (WMA) limit for H1 of FY 2022-23 at ₹1.5 lakh crore.

Meanwhile, the Centre and the Reserve Bank of India are working jointly in bringing out a Framework for issuance of Sovereign Green Bonds, as announced by the  Finance Minister in the Budget Speech this year. The issuance of Sovereign Green Bonds will be announced once the preparatory work is completed.

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